Managers who sniff increases in state and local taxes have a keen sense of smell. State governments in particular are coming up with ingenious ways to capture more tax revenues from companies that don't even have facilities within their borders. "Some states have become extremely aggressive in going after corporate taxes as a big source of revenues," explains Marc Blumenthal, a partner at the Clifton, N.J., accounting firm of Sax, Macy, Fromm and Co., which specializes in state tax issues.

How aggressive do they get? Well, New Jersey, California, Illinois, and Florida are just a few of the states that have established out-of-state audit offices with the goal of bringing tax money back home. "Most major industrial states have set up offices in most of the northeastern states," reports Blumenthal. "They'll send questionnaires to local companies, even check truck license plates, in their efforts to build a case about why they deserve tax payments."

Between back-interest charges and penalties, state tax audits can turn out to be expensive nightmares if your company doesn't pass. In the worst case, you can wind up paying more than 100% of your tax liability.

It works like this: if a state decides your company deserves a tax audit, it will probably go after five years or so of disputed sales or corporate income taxes. "Companies get stuck in a double bind," says Blumenthal. "Since they wouldn't have filed a tax form in the auditing state -- because they probably didn't know they could be construed as doing business there for tax purposes -- there's no statute of limitations on how far back the audit can go. But their own states probably have a limit -- generally two to three years -- on how far back the companies headquartered within their borders can amend their tax returns to ask for refunds if they have to pay more money to outside states."

What can get you in trouble? Blumenthal highlights three hot spots:

Salespeople: "Thanks to Public Law 86-272, your sales staff is allowed to solicit business in all states without incurring local taxes. But the minute a salesperson does something that can be construed as not strictly solicitation, such as physically picking up an item for return or giving instructions after the sale about how to use your products, local states can go after you for taxes."

Deliveries: Ship your products by common carrier and you don't have to worry about local taxes, but if you use your own truck, you do. Distinctions can get pretty technical: "If you're delivering magazines to another state and you simply drop them off at the store, you're OK. If your delivery person puts them on the rack, expect a local tax bill," warns Blumenthal.

Credit: Make decisions about a potential customer's creditworthiness from the home office, because it's a taxable no-no to let your salesperson do it. Likewise, don't let traveling salespeople deal with delinquent collectibles.

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Here are five ideas to keep your company out of state-tax trouble:

1. Pin up a comprehensive chart of current tax risks by state, available with a complete set of 86-272 rules from Sax, Macy, Fromm and Co., 855 Valley Rd., Clifton, NJ 07013. (Send a stamped, self-addressed envelope.)

2. Write a formal job description for salespeople that complies with the dos and don'ts of Law 86-272.

3. Try to make deliveries by common carrier rather than with your own trucks.

4. Consult your lawyer or accountant before responding to any inquiries from any state's tax authorities. Blumenthal tells a cautionary tale: "One of our New Jersey clients received what looked like an innocent inquiry from the state of Pennsylvania, so a clerk answered it. The next thing the client knew, the company was being audited."

5. If you do any business out of state, make sure your accounting firm is up to speed on all relevant tax rules and audit risks.

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